For the past three decades, the Korean economy has maintained a GNP growth rate
of 9 percent. In 2001, Korea's exports recorded US$1504.4 billion, a surge of
188 times more than the US$8 million export value in 1970. The major factors
contributing to this remarkable and sustained growth were high-quality manpower
and an outward-looking development strategy.
In the process of economic growth, primary industries' share in the total industrial
structure decreased steadily from 27.1 percent in 1970 to 14.8 percent in 1980
and to 4.4 percent in 2001. The manufacturing industries' share increased from
21.5 percent in 1970 to 29.2 percent in 1990 and to 30.3 percent in 1996. However,
it dipped to 28.9 percent in 1997, reflecting constraints leading to the economic
crisis late in the year. Construction and SOC (Social Overhead Capital) increased
steadily from 6.7 percent in 1970 to 13.7 percent in 1997 and dipped to 11.1
percent in 2001 with a slumped construction industry after the 1997 crisis.
The share of the service industries was 54.1 percent in 2001, which by far was
the greatest growth sector in the economy.
As a result of structural reforms in the economy following the 1997-98 upheavals,
Korea was able to build a strong industrial foundation, especially in the areas
of semiconductors, automobiles, shipbuilding, and petrochemicals. For example,
Korea's shipbuilding industry holds 32. 3 percent of the world market share,
competing neck and neck with Japan, followed by the People's Republic of China
with 6.8 percent in 2001.
Since November 1997, however, the currency crisis and financial meltdown have
threatened the remarkable economic growth Korea has achieved over the past three
decades. With the pervasive restructuring and rebuilding phase, the economic
situation has started to right itself, although industries and firms are still
facing great strains. Industries, which are highly dependent on domestic market
sales have suffered most due to the sluggish demand. These industries include
the construction, steel, petrochemical, machinery, textiles, and most service
industries. On the other hand, the export-oriented industries escaped the recession
relatively unharmed. High technology products, including semiconductors, telecommunications
equipment and computers, fared quite well compared with the lower value-added
products. According to a recently published survey, the top 10 export products
in the first half of 2001 were: semiconductors, automobiles, computers, wireless
telecommunication equipment, ships, oil products, synthetic fibers, visual display
devices, steel plates and clothing. Those items accounted for 55.4 percent of
the nation's total export revenue during the period. Compared with the top 10
item list made in 1982, only five items - clothing, ships, steel plates, semiconductors
and visual display devices remained on top. Semiconductors, automobiles, and
communication equipment grew so vigorously in terms of export that it topped
the list and replaced other items such as shoes, synthetic filaments, audio
equipment, textiles and steel structures.
| Trends of Korea's Industrial Structure |
| (unit: %) |
|
1970 |
1980 |
1990 |
1995 |
1997 |
1999 |
2000 |
2001 |
| Agriculture, Forestry & Fishing |
26.6 |
14.7 |
8.7 |
6.5 |
5.4 |
5.1 |
4.7 |
4.4 |
| Mining & Manufacturing |
22.5 |
29.7 |
29.7 |
27.1 |
29.3 |
31.1 |
31.6 |
30.3 |
| (Manufacturing) |
(21.5) |
(28.2) |
(29.2) |
(26.8) |
(28.9) |
(30.7) |
(31.3) |
(30.0) |
| Construction & SOC |
6.6 |
10.1 |
13.7 |
16.2 |
13.7 |
11.4 |
10.8 |
11.1 |
| Service |
45.3 |
55.5 |
47.9 |
51.2 |
51.6 |
52.4 |
52.9 |
54.1 |
|
| Source: Bank of Korea |
Computer & Telecommunications Equipment Industries
Computers and Peripherals
The major products that Korean computer manufacturers produce are multimedia-capable
computers such as desktop personal computers (PCs) and notebook PCs, and peripherals
such as hard-disk drives (HDDs), CD-ROM drives, and printers.
The Korean computer & peripherals industry has played a major role in the national
economy recovery from the financial crisis in 1997. In line with the world-wide
IT(Information Technology) boom, including the Internet and technology revolution,
the industry has shown a noteworthy impetus in many aspects. Korea's computers
have achieved remarkable results in production and exports by following the
small margin per unit and large-scale selling strategy. From 1996 to 1999, production
and exports have grown by 15.9 percent and 15.5 percent annually as illustrated
in the chart below. Korea is especially outstanding in the area of computer
peripherals by the improved quality of goods and lowered value of the Korean
currency. The share of peripherals of total computer products was 66 percent
and 73 percent of total production and exports in 1999.
The world's demand for computers and peripherals in 1996 was at a standstill,
mainly because the purchasing of PCs has been underway since 1995. However,
this was not the case in Korea. The export growth rate of Korea-made computer
products maintained a two-digit figure, 14.8 percent in 1997. This was possible
because demand for computers and peripherals recovered in the major world markets
and Korean manufacturers have improved their technologies necessary for high-end
peripherals.
The industry is expected to maintain substantial growth trends for many years
to come, mainly due to increasing world demand as well as to the growing Korean
market. As the Internet industry brings prosperity to both domestic and overseas
markets, domestic demand is expected to grow by 12.8 percent and exports by
15.8 percent annually through the years 1999 to 2002.
Increased use of the Internet and continued expansion of corporate Intranets
will be the principal forces driving demand for computers and its equipment
for the next 5 years at least thereby improving the nations trade balance. These
forces will create an increasing demand for greater computer storage.
In addition, strongly backed up by the solid technological background in memory
semiconductors, peripherals such as appliances ranging from smart phones to
television set-top boxes are expected to show desirable export achievements
ahead.
| Production and Exports in Computer & Peripherals |
| (in million dollars, %) |
|
|
1996 |
1997 |
1998 |
1999 |
Annual Growth Rate (1996~99) |
| Production |
Computers
Peripherals
Total |
2,003
5,939
7,942 |
2,313
7,984
10,297 |
1,442
6,170
7,612 |
4,177
8,199
12,376 |
27.8
11.3
15.9 |
| Exports |
Computers
Peripherals
Total |
159
4,548
4,707 |
221
5,098
5,319 |
344
4,325
4,669 |
1,971
5,295
7,267 |
131.4
5.2
15.5 |
|
| Source: Computer & Communications Promotion Association of Korea |
Telecommunications Equipment
The telecommunications equipment industry is composed of wire and radio communication
equipment. Wire communication equipment includes wire telephone sets, telephone
switch boards & exchanger's equipment, carrier current line system, telegraphic
apparatuses, and parts. Radio communication equipment encompasses wireless telephone
sets, transmission apparatuses, television cameras and receivers, receiving
apparatuses, and parts.
In recent years, Korea's telecommunication equipment industry has been very
successful, with the mobile phone as the most ideal item. The CDMA (code division
multiple access) digital mobile phone service (cellular phone service) and CDMA
based PCS (personal communications service), which were commenced in 1996, have
expedited an explosive nationwide demand for mobile phones. In addition, invigorated
with the successes in the domestic market, mobile phone manufacturers have also
succeeded in overseas markets, listing mobile phones as one of the pivotal export
items that contributed immensely to putting the national trade balance into
the black. Passing through the financial crisis of 1997-98, the domestic market
for telecommunications equipment has increased steadily since various new services
initiated more fierce competition.
While imports of wired telecommunications and wireless data communications equipment
have increased, imports of wireless telecommunications equipment, including
mobile telephones and TV broadcasting equipment, have decreased drastically
as the country becomes more self-reliant in these vital sectors. As a result,
total imports of telecommunications equipment are down.
The telecommunications equipment industry in Korea has been adapting and introducing
very successful technological developments for the last several years, and the
future looks prosperous. In particular, mobile phones show great prospects as
the IMT-2000 is in preparation for global multimedia mobile telecommunication
services in the near future. The magnitude of the domestic market for the industry
has recorded outstanding growth in the past, and will continue to prosper in
the future. The domestic market size is projected to grow to 27.9 billion dollars
in 2002, recording an average annual growth rate of 12.8 percent from 1999,
while exports will increase to US$22.3 billion at an average annual growth rate
of 17.7 percent.
| Production and Exports in Telecommunication Equipment |
| (in million dollars, %) |
|
|
1996 |
1997 |
1998 |
1999 |
Annual Growth Rate (1996~99) |
| Production |
Wire
Wireless |
6,001
5,086 |
5,720
8,759 |
3,566
6,579 |
4,440
9,691 |
^0.0
24.0 |
| Total |
11,087 |
14,479 |
10,145 |
14,131 |
8.4 |
| Exports |
Wire
Wireless |
1,429
982 |
1,323
1,531 |
1,150
2,255 |
1,247
4,789 |
^4.4
69.6 |
| Total |
2,411 |
2,854 |
3,405 |
6,046 |
35.9 |
|
| Source: Computer & Communications Promotion Association of Korea |
Durable Consumer Goods Industries
Consumer Electronics
Consumer electronics products are generally divided into three categories:
video equipment, audio equipment and home electrical appliances. Video equipment
comprises TVs and VCRs, while audio equipment consists of radios and audio components,
and home electrical appliances includes microwave ovens, refrigerators, washing
machines, and room air-conditioners.
Due to the economic recovery and increasing demand in the export domestic markets,
the electronics industry will grow briskly. Although the industry expanded remarkably
in 1999, the consumer electronics industry's production share decreased to 4.8
percent from 6.5 percent in 1996, and that of exports decreased to 12.3 percent
in 1999 from 19.0 percent in 1996. This clearly reflects the shift of electronics
production by manufacturers towards semiconductors, telecommunication equipment
and software. Furthermore, the Korean consumer electronics industry, as a result
of increase in labor costs, also had an impact by its weakened competitiveness,
which is losing its edge in the middle and low price range products.
By early 1999, the consumer electronics industry had fully recovered from the
recession of 1997. The main factors for its recovery are attributable to general
business recovery, Asian region economic recovery, and brisk demand from overseas
markets. Production, supported by large domestic demand and strong exports,
stood at US$ 9.444 million in 1999, a 36.4 percent increase over 1998. The key
to this stellar growth was the aggressive export-driven strategy targeting the
global market with products that have world class quality including flat-screen
display TVs, and air conditioners, etc.
Home network digital TV systems are being mass produced and the development
of Internet and digital household products is in full swing with such items
as Internet TVs and Internet refrigerators. Prices are decreasing constantly.
With the growing popularity of Digital TV and DVD, the digitalization of the
audio sector is being accelerated. The product line-up of audio systems with
MD and DVD players is expanding rapidly. In addition, demand for digital audio/video
receiver amplifiers and home theater systems are increasing. DVD players are
gaining attention with the increased availability of DVD products in the market.
Meanwhile, MP3 players, which Korean companies commercialized for the first
time in the world, allow access to real-time, low-cost AOD services via the
Internet. The next-generation audio products expecting to duplicate the Walkman
phenomenon are being developed by 100 different Korean audio-specialty and venture
companies. These include integrating MP3s, mobile phones, FM receivers, audio
& video CDs, karaoke CDs, etc. into a multiplayer format.
The development of network technology has sparked the digitalization of domestic
electrical home appliances. For instance, by reading bar codes attached to food
items, high-tech refrigerators are under development that are designed to record
and display the quantity and storage period of products. A new concept air-conditioner
has incorporated a communication function to receive information from weather
forecasters, thus maintaining a comfortable indoor environment.
Moreover, Korean electric home appliance makers are busy developing electricity-saving
products. Refrigerators of the 500~680-liter class have made their debut, with
electricity consumption cut down to a half of conventional models. Washing machines
that can save a lot of electricity also have been developed. In addition, Korean
companies have succeeded in the development of air conditioners utilizing high-function
pressure so as to maximize energy efficiency, thus saving more than half the
energy required by conventional products.
Meanwhile, air conditioners led home appliance exports despite growing at a
moderate 6.9 percent rate in domestic sales. Air conditioners followed microwave
ovens as the second leading export product.
Production, supported by increased nationwide demand and strong exports, stood
at 5,657 billion won (US$4.5 billion), a 13.4 percent increase over 1998.
| Supply and Demand |
| (in million dollars, %) |
|
1999 |
2000 |
2001 |
2002 |
Growth Rate (2002/2001) |
| Production (A) |
13,524 |
15,585 |
15,659 |
17,589 |
12.3 |
| Imports (B) |
1,555 |
2,352 |
2,508 |
3,008 |
19.9 |
| Domestic Sales (C) |
5,798 |
7,850 |
8,475 |
9,834 |
16.0 |
| Exports (D) |
8,361 |
10,136 |
9,693 |
10,760 |
11.0 |
| D/A |
61.8 |
65.0 |
61.9 |
61.2 |
|
| B/C |
26.8 |
30.0 |
29.6 |
30.6 |
|
|
| Source: Electronic Industries Association of Korea, Korea Trade Information
Services |
| Production and Exports by Major Items |
| (in million dollars, %) |
|
1999 |
2000 |
2001 |
2002 |
Growth Rate (2002/2001) |
| Color TVs |
Production |
2,526 |
2,984 |
2,879 |
3,525 |
22.4 |
| Exports |
1,661 |
1,759 |
1,612 |
1,956 |
21.3 |
| VCRs |
Production |
1,319 |
1,414 |
1,303 |
1,366 |
4.8 |
| Exports |
791 |
1,002 |
938 |
1,012 |
7.9 |
| Audio Equipment |
Production |
2,250 |
3,502 |
3,381 |
3,567 |
5.5 |
| Exports |
1,865 |
2,671 |
2,381 |
2,402 |
0.9 |
| Refrigerators |
Production |
1,606 |
1,713 |
1,949 |
2,330 |
19.5 |
| Exports |
672 |
767 |
771 |
894 |
16.0 |
| Washing Machines |
Production |
737 |
821 |
818 |
1,034 |
26.4 |
| Exports |
286 |
353 |
366 |
465 |
27.0 |
| Air Conditioners |
Production |
1,147 |
2,095 |
1,674 |
2,081 |
24.3 |
| Exports |
742 |
1,063 |
1,073 |
1,159 |
8.0 |
| Microwave Ovens |
Production |
920 |
886 |
812 |
843 |
3.8 |
| Exports |
745 |
778 |
716 |
724 |
1.1 |
| Others |
Production |
3,019 |
2,170 |
2,843 |
2,843 |
0.0 |
| Exports |
1,590 |
1,743 |
1,836 |
2,148 |
17.0 |
| Total |
Production |
13,524 |
15,585 |
15,659 |
17,589 |
12.3 |
| Exports |
8,361 |
10,136 |
9,693 |
10,760 |
11.0 |
|
| Source: Electronic Industries Association of Korea, Korea Trade Information
Services |
| Prospects for Demand by Item |
| (in million dollars, %) |
|
2003 |
2004 |
2005 |
2006 |
2007 |
Annual Growth Rate (2003-2007) |
| Color TVs |
Domestic |
1,950 |
2,100 |
2,280 |
2,480 |
2,700 |
8.5 |
| Exports |
2,850 |
3,500 |
4,250 |
5,100 |
6,100 |
20.9 |
| VCRs |
Domestic |
500 |
510 |
525 |
535 |
540 |
1.9 |
| Exports |
1,050 |
1,100 |
1,150 |
1,210 |
1,270 |
4.9 |
| Refrigerators |
Domestic |
1,600 |
1,750 |
1,950 |
2,100 |
2,300 |
9.5 |
| Exports |
1,100 |
1,250 |
1,400 |
1,560 |
1,750 |
12.3 |
| Washing Machines |
Domestic |
640 |
680 |
730 |
780 |
810 |
6.1 |
| Exports |
580 |
590 |
810 |
920 |
1,000 |
14.6 |
| Microwave Ovens |
Domestic |
125 |
130 |
140 |
155 |
170 |
8.0 |
| Exports |
610 |
700 |
750 |
800 |
860 |
9.0 |
|
| Source: Electronic Industries Association of Korea, Korea Trade Information
Services |
Automobiles
The automotive industry leads a wide range of industry, including electronics
and steel and has a direct impact on other industries ranging from raw material
and parts suppliers to machine manufacturers, car repair shops, retailers, and
financial institutions. In Korea, the automotive sector contributes 9.4% of
value-added and production of total manufacturing industry and accounts for
8.3% of national export value and 7.4% of gross national employment.
The Korean automobile industry started in the early 1960s when the First Five-Year
Economic Development Plan was implemented by the Korean government.
Since then, the Korean automotive industry achieved a sustained growth thanks
to consistent Korean economic growth and continuous investment in R&D; as well
as dedicated efforts to build up capabilities by the manufacturers, except in
the latter part of 1990s following the financial crisis in late 1997.
The Korean auto industry has grown as the fifth largest auto producer in the
world accounting for 5.4% of world auto production. Currently there are five
major automakers in Korea: Hyundai Motor Co., Kia Motors Corp., GM Daewoo Auto
& Technology Co., Ssangyong Motor Co., and Renault Samsung Motors Co., Ltd.
Korean auto industry is competitivenessis derived from its highly skilled and
experienced workforce and the availability of good quality parts and components
at competitive prices. It also has strong export marketing activities to meet
diversified demands in the global market with product lines comprising from
mine cars to SUVs and high-end cars, as well as commercial vehicles (buses and
trucks) and special-purpose vehicles.
In the wake of 1997 the financial crisis, there was a massive restructuring
and realignment. Hyundai took over Kia in 1999, and GM acquired Daewoo in 2002.
Samsung was also sold to Renault in 2000. Such restructuring and streamlining
of Korean auto industry brought about enhanced competitiveness throughout the
industry.
In 2002, over 3.1 million automobiles were produced in Korea, the highest record
the country has ever achieved. In the same year, domestic sales reached 1.62
million units, up 11.8% over 2001. This is attributed to the relatively brisk
Korean economic growth and the government's measures to boost consumption, and
also to the rapidly growing popularity of SUV as well as the introduction of
many new models. However, exports remained at the same level of 2001 with 1.5
million units.
It is expected that domestic sales will see a considerable drop due to the slackened
demand as a result of economic slowdown. But exports will continue to grow by
more than 10% owing to the stabilization of Korean auto industry and the improvement
of brand image of Korean cars in the overseas markets with enhanced quality
and consumer satisfaction. Against this backdrop, total production in 2003 is
expected to reach 3.2 million units, marking another record year.
In a long-term prospect, Korean automobile industry will achieve a stable growth,
as it vigorously pursues more R&D; in advanced technologies to enhancing capability
in developing new products, and to achieve higher safety and environmental competitiveness.
It is predicted that total production will reach 4.25 million units in 2010,
while domestic sales and exports will increase to 2.15 million units and 2.1
million units, respectively.
Shipbuilding
The shipbuilding industry involves the construction, repair, and conversion
of all sorts of ships. Shipbuilding requires heavy investment and advanced technology
as well as a wall-trained labor force.
The Korean shipbuilding industry, as a core industry with a high upstream and
downstream effect, has played a significant role in leading the development
of other industries such as iron and steel, chemical, electric, electronics,
shipping, defence, and leisure industries. In 1970s, Korea started to emerge
as one of world's shipbuilding competitors based on its abundant high-quality
labor.
The shipyard construction of the 1970s reflects this growth. In 1973, Hyundai
Heavy Industries Co., Ltd. completed construction of its shipyard. In 1978,
Daewoo Shipbuilding and Marine Engineering Co., Ltd. completed a No. 1 dock,
and in 1979, Samsung Heavy Industries Co., Ltd constructed its own No. 1 dock.
In the 1980's, the situation had progressed sufficiently for Korea to rank second
in the world shipbuilding league in terms of marketshare. Productivity improvement,
technology development, and the growth of related industries, among other factors,
helped increase shipbuilding volume continuously without having to add new facilities.
And in the second half of the 1980s, their world marketshare rose from 10 percent
to 25 percent.
In the 1990s, Korean shipbuilders made every efforts to accumulate the advanced
technology required for the construction of high value-added vessels. In the
late 1990s, Korean shipbuilders achieved great productivity improvement both
in terms of yearly production volume per employee and yearly number of turnover
of dry docks.
According to the data released by the Korea Shipbuilders Association (KOSHIPA),
new orders placed by Korean shipbuilders in 2002 amounted to 7.6 million CGT.
This is an increase of 18.5% compared with 6.4 million CGT in the previous year.
With the productivity improvement and the upgrading of production technology
along with sufficient workload, Korean shipbuilders built a record high of 6.8
million CGT in 2002, up 5.9% in tonnage terms over the previous year. In the
interim, the order books as of the end of 2002 recorded 17.1 million CGT, up
5.3% compared to a year earlier. This is approximately a two-and-half-year workload.
In the 21st century, Korean shipbuilders are seeking to transform quantitative
into a qualitative growth, and are focusing on producing high value-added ships
which offer greater profitability. To fulfill their responsibilities as a leading
shipbuilding country, Korean shipbuilders will also do their best to develop
new technology for qualified ships and deliver environment-friendly ships. For
the prevention of global warming, a new ship type and FSO for carrying or storing
liquefied carbon dioxide (LCD) are expected to be required, of which sector
world shipbuilders should take full attention.
General Machinery
The general machinery industry is a typical capital goods industry, which
supplies production equipment and parts to every sector of the economy. This
industry consists of engines & turbines, machine tools & metal processing machinery,
agricultural, construction & mining machinery, transportation & stevedoring
machinery, air-conditioning & refrigeration machinery, chemical equipment, printing
machinery, textile & leather processing machinery, rubber & plastic processing
machinery, among many others.
The general machine industry in Korea has been decisive in strengthening the
competitiveness of the industry as a whole, supplying production equipment and
parts to every manufacturing sector. The actual situation is, however, not optimistic.
As small business companies, which lack R&D; capital, technology and marketing
power, have been given too much weight in the light of the number in this industry
sector, the machine industry incurred much more serious damage than any other
industry by the battered economy since late 1997.
It was a great blow to the machine industry when the Korean economy plunged
under the IMF bail-out program. Production and domestic demand fell to around
half the level of the previous year in 1998. This was mainly because of the
downturn in facility investment and a large number of machine-demanding companies
going under. The situation worsened when the companies even sold their used
equipment and machines at their plants.
After undergoing such a desperate decline, the general machine industry is on
the verge of recovery, but not yet on track. Production was estimated to rebound
to the amount of US$24,722 million in 1999, a sharp increase of 25.3 percent
compared with the previous year. This was mainly due to the upsurge in domestic
equipment investment following the overall recovery of the Korean economy. It
also caused the amazing downswing in imports when the major demand industries,
which were ailing from the Korean economic recession, drastically lowered investment
into their facilities. Total import sank to US$7,901 million in 1998 from US$16,959
million in 1997, down 53.4 percent. Consequently, the local market dwindled
drastically in 1998. In 1999 imports went up by 26.9 percent to US$10,028 million,
recovering somewhat but still not enough. This import amount was less than half
of the US$22,340 million in 1996.
Domestic demand was estimated to have increased by 32.7 percent in the same
period, amounting to US$25,515 million. The local market has not recovered enough
yet, but is believed to have passed the turning point. Export was sluggish between
1996 and 1999, showing only an annual average growth rate of 0.6 percent. Korean
exports to the United States and the EU were active however Asian countries
still feeling the effects of the recession were sluggish.
The general machine industry is expected to focus on high-precision and high-capacity
following worldwide trends, which is requiring continuous and enormous R&D.;
However, it is doubtful whether local makers can compete with advanced countries
in such spearhead sectors.
Production is estimated to amount to US$38 billion in 2002 at an average annual
growth rate of 10.9 percent between the years 2000 and 2002. But this amount
is still below the record high of about US$43 billion in 1996. Domestic demand
is expected to expand to US$46 billion by 2002 at an average annual growth rate
of 14.9 percent. Imports are forecast to amount to US$21 billion by 2002, an
annual increase of 18.2 percent. Japanese imports account for 40 percent of
the total. Owing to the removal of the Import Diversification System, which
was protecting Korean makers from Japanese producers, imports from Japan are
likely to increase enormously and the Korean machine industry will depend on
Japan more than ever, especially in the field of products requiring high-technology
and high-precision. Exports will likely increase at a rate of 8.3 percent annually,
amounting to US$13 billion in 2002. This is mostly because Korean makers have
been trying to diversify their export market from the three big countries, the
U.S., Japan and China to other countries where the potential demand is abundant,
such as Central and South America, Eastern Europe, etc.
| Supply and Demand |
| (in million dollars, %) |
|
1996 |
1997 |
1998 |
1999 |
Annual Growth Rate (1996~99) |
| Production (A) |
42,932 |
38,196 |
19,724 |
24,722 |
^16.8 |
| Imports(B) |
22,340 |
16,959 |
7,901 |
10,028 |
^23.4 |
| Domestic Demand (C) |
56,208 |
45,773 |
19,230 |
25,515 |
^23.1 |
| Exports (D) |
9,064 |
9,382 |
8,395 |
9,236 |
0.6 |
| D/A |
21.1 |
24.6 |
42.6 |
37.4 |
|
| B/C |
39.7 |
37.0 |
41.1 |
39.3 |
|
|
Notes: 1) Production and domestic demand in 1999 are estimates.
2) C=A+B-D
Sources: 1) The Korea Development Bank
2) Korea Association of Machinery Industry |
Components and Materials Industries
Semiconductors
Semiconductors include discretes and integrated circuits. Discretes perform
a single electronic function acting as a diode or a transistor. Integrated circuits
(ICs) incorporate thousands or millions of microscopic transistors and other
functional components to form complex electronic circuits on the surface of
a rigid substrate such as a "chip" of silicon; thus, they are sometimes called
computer chips.
As a driving force for Korea's economic growth, the semiconductor industry has
become one of the most important industries in Korea since the mid-1980s. As
a result, semiconductor has become Korea's largest single export item since
1992, representing nearly 10 percent of Korea's total exports in the year 2002.
Under the International Monetary Fund-guided economic program or the so-called
IMF-era since late 1997, the Korean semiconductor industry, particularly the
memory chip sector, has been playing a vital role in overcoming Korea's economic
recession. This is because Korea's memory chip industry has become the most
competitive in the world with exports accounting for about 90 percent of its
sales. Most chips are shipped to the United States, Japan, European Union, and
Asian countries.
From 2000 to 2002, the Korean semiconductor industry suffered from a recession
due to a global supply glut in the memory chip market and a sharp drop in prices.
Thus, the total production value decreased from US$28.5 billion in 2000 to US$18.2
billion in 2002, recording an annual average decrease of 36 percent. In 2002,
Korean semiconductor production was slightly up 8.3 percent over the previous
year, thanks to the moderate rise in worldwide demand for such ICs as Dynamic
Random Access Memory chips (DRAMs), which is supported by the worldwide increasing
demand for personal computers, mobile phones, and telecommunication equipment.
Along with the increase in production driven by DRAMs, exports rose to US$16.6
billion in 2002, up 16 percent compared to 2001. Of total exports, semiconductors
accounted for 10.2 percent in 2002.
Domestic demand grew from US$9 billion in 2001 to US$9.7 billion in 2002, with
an annual average growth rate of 7.7 percent. In particular, domestic demand
increased 54.4 percent in 1999. This high growth rate is attributable to the
increasing demand for personal computers, TVs, VCRs and mobile phones. In addition
to the high growth in domestic demand, semiconductors imports grew from US$4.2
billion in 1998 to US$8.6 billion in 2002.
Major features of the Korean semiconductor industry are high export rate and
heavy dependence on imports. Korean semiconductor production is overly concentrated
on memory devices such as DRAMs and Static Random Access Memory chips (SRAMs).
As a result, Korean semiconductor producers export about 86 percent of their
domestic production, while nearly 84 percent of domestic demand for semiconductors,
primarily for non-memory devices such as microprocessors and ASICs, was imported
in 1999. This explains that the industry has a high foreign dependence structure,
with a high degree of imbalance between domestic supply and demand.
Such excessive dependence on memory device exports such as DRAMs and SRAMs places
Korea exposed to severe price fluctuation. Semiconductor industries in developed
countries like the US and Japan, which have a smaller portion of memory chip
in product portfolio, have been less vulnerable to chip price fluctuations than
Korea. While the non-memory chip accounts for 70 to 90 percent of total semiconductor
production in those advanced countries, Korea depends on memory chip production
for 80 to 90 percent of its sales revenue.
Another outstanding feature in the Korea semiconductor industry is the huge
import dependency of semiconductor manufacturing equipment and materials. Korea's
semiconductor equipment market recorded about US$1.9 billion in 2002, but 85
percent of semiconductor equipment was imported. On the other hand, the United
States and Japan imported only 25 and 20 percent of their equipment's demand,
respectively.
Semiconductor materials include wafers, lead frames, photo masks, bonding wires,
photo resists, etc. The semiconductor materials market was at about US$1.7 billion
in 2002, 50 percent of which was imported from the United States and Japan.
This dependency on imports is higher than that of Japan, though lower than the
United States.
This dependency on foreign semiconductor equipment and materials induces a weak
competitiveness in Korean semiconductor makers, making it difficult for them
to respond with appropriate action to the changes in market conditions.
In order to improve competitiveness, the Korean semiconductor industry has focused
its efforts on technology development of memory device products. It resulted
in technological advancement in non-memory devices such as ASICs, next generation
semiconductors like Silicon Carbide chips (SiCs) and semiconductor equipment
and materials being far behind the developed countries.
Recently, the Korean government, in collaboration with the private sector, has
expanded investment in the development of non-memory semiconductor technology
and foster a strong pool of research manpower. Under the plan, the government
and the private sector will join hands to develop the technologies for everything
from system ICs to next generation equipments and materials until 2010.
The global semiconductor industry which bottomed out of 2002 is in a period
of strong cyclical expansion. According to the World Semiconductor Trade Statistics
(WSTS) and Dataquest, the global semiconductor market will enjoy a continued
boom for the next two or three years. Therefore, the future production and exports
in the Korean semiconductor industry look bright.
Promising domestic production and export forecasts are based on the increasing
demand for personal computers, mobile phones, telecommunication equipment, etc.,
both domestically and internationally.
Iron & Steel
Steel mill products, which include crude steel, come in finished and semi-finished
products. Finished products are generally divided into three segments: long
and flat products and casting and forging products.
The Korean iron & steel industry experienced hardship as total demand shrank
remarkably from the intense stagnancy of business conditions under the IMF bailout
program in 1998. However, steel production in 1999 reached pre-crisis levels
of production due to rapid demand recovery and strong exports. This is because
Korea's economic growth rate recorded 10.7 percent, contrary to the expectation
of continued dullness in 1999. Among the steel-linked industries, major manufacturing
industries like automobiles and shipbuilding were very brisk, however construction
has not come out of its downward trend as of yet.
Crude steel production increased from 38.9 million tons in 1996 to 41.0 million
tons in 1999, despite a dip in 1998, maintaining the status of the 6th largest
steel producer in the world. Electronic furnaces (EAF) production increased
gradually and raised its share in total production from 39.5 percent in 1996
to 41.6 percent in 1999.
The share of the iron and steel industry in the total manufacturing industries
increased also. In 1998, its production accounted for 7.0 percent of the total
production of manufacturing industries, compared to 6.3 percent in 1995. The
share of its value added in the total manufacturing industries has also increased
to 5.9 percent in 1998 from 5.2 percent in 1995.
However, the Korean iron and steel industry still has many problems such as
the supply surplus in cold-rolled sheets and sections and the incomplete restructuring.
In addition, the industry is confronted with a changing environment such as
globalization and mega-mergers, so that the proper reaction of the Korean iron
and steel industry is required.
The industry, which was showing brisk expansion in the 1990s, suddenly shrank
on account of the economic crisis in 1998. But total demand (both domestic and
overseas) for steel products in 1999 exceeded that in 1996, restoring the decrease
of total demand in 1998. The recovery of Korean manufacturers in such areas
as automobiles, shipbuilding and machinery has driven domestic demand for steel
products up. Owing to the efforts to expand exports, they showed an annual growth
rate of 11.7 percent between 1996 and 1999.
Domestic demand of this industry is forecast to increase at an annual rate of
12.4 percent from 1998 to 2002 reflecting the steep decrease in 1998. However,
the annual growth rate from 2000 to 2002 is forecast to be only 3.4 percent.
That is, the industry will not be expected to enjoy the fast growth as it had
in the past several years.
This diminishing increase rate of domestic demand mirrors a structural change
developing in the iron and steel industry. In line with economic development,
industries consuming less iron and steel are expected to increase. This explains
that, in future, iron and steel consumption will not parallel the growth of
GNP but will grow at a lesser rate.
However, the growth rate is forecast to be at a higher level relative to advanced
countries. According to two forecasts conducted by the International Iron and
Steel Institute (IISI) and the Organization for Economic Cooperation and Development
(OECD) it is anticipated that the growth in the Korean iron and steel industry
can be evaluated as slow but steady due to the stable growth in domestic demand.
Thus, total demand (domestic demand and exports) of the Korean iron and steel
industry is forecast to grow at an annual rate of 6.9 percent until 2002, recording
53.8 million tons in 2002. Production is expected to reach 51.1 million tons,
reflecting an annual growth rate of 6.6 percent from 1998 to 2002.
The development of the iron and steel industry is invaluable in the growth of
the manufacturing sector and will continue to play a pivotal role in the development
of the Korean economy.
| Supply and Demand |
| (in thousand tons, %) |
|
1996 |
1997 |
1998 |
1999 |
Annual Growth Rate(1996-99) |
| Production (A) |
42,379 |
44,733 |
39,569 |
44,716 |
1.8 |
| Import (B) |
4,660 |
3,776 |
1,642 |
2,480 |
^19.0 |
| Domestic Demand (C) |
37,583 |
38,146 |
25,009 |
34,035 |
^3.3 |
| Export (D) |
9,456 |
10,364 |
16,202 |
13,161 |
11.7 |
|
| Source: Korea Iron and Steel Association |
Petrochemicals
Despite the short history of 30 years, the Korean petrochemical industry
has achieved tremendous development helping to fuel the country's high economic
growth. Korea has been one of the world's major producers of petrochemicals
with overall annual ethylene capacity of 5,700 thousand tons from various downstream
plants.
The yearly production capacity of the petrochemical facilities in Korea in the
late 1970s was 155 thousand tons of ethylene from the naphtha cracker and downstream
facilities in Ulsan. At the end of 1979, the second petrochemical complex with
an annual production capacity of 350 thousand tons was constructed in Yeocheon.
During the next decade between the late 1980s and the early 1990s, the third
petrochemical complex was completed in Daesan alongside with the massive new
and expansion projects. Further new and expansion projects were implemented
continuously, and currently 5,700 thousand tons of ethylene are produced annually,
which is four to five times the production capacity of the late 1980s.
The domestic production and demand is forecasted to grow no more than three
to four percent, due to the slow growth in the overall production, which will
be caused by the slow recovery in the overall economy and the resulting slowdown
in consumer sentiment. Exports during the second half of 2003 are anticipated
to grow by four percent compared to last year, as the world economy is expected
to recover gradually and the world demand is expected to grow.
The forecasted demand growth, notwithstanding, enhancing the competitiveness
and diverse other difficulties lie ahead for the Korean petrochemical industry.
| Supply and Demand for Major Petrochemicals |
| (in thousand tons, %) |
|
1996 |
1997 |
1998 |
1999 |
2000 |
2001 |
2002 |
Annual Growth Rate(1996-2002) |
| Production |
10,290 |
12,491 |
13,414 |
14,458 |
14,882 |
15,183 |
16,092 |
7.7 |
| Imports |
1,297 |
1,298 |
952 |
1,172 |
1,225 |
1,156 |
1,371 |
1.1 |
| Exports |
3,580 |
4,887 |
6,671 |
6,201 |
6,599 |
6,868 |
7,145 |
12.2 |
| Demand |
8,008 |
8,902 |
7,695 |
9,429 |
9,508 |
9,473 |
10,318 |
4.3 |
|
Note: Major petrochemicals cover synthetic resins, synthetic fiber
raw materials and synthetic rubbers.
Source: Korea Petrochemical Industry Association |
Textiles
The Korean textile industry maintains an export-oriented industrial structure
by importing one-third of raw materials from overseas and exporting two-thirds
of its processed products. The production process is in multi-stages starting
from raw materials, buttonhole stitching, fabric, dyeing, clothes, manufacture,
and finally distribution. This industry creates employment and attains high
added value.
Although the general understanding of the textile industry is that it's a declining
industry, textile export is at 9.7% of the total amount of export. In the year
2001, the trade balance of the textile industry recorded US$11.2 billion, which
exceeds Korea's total trade surplus of US$9.3 billion.
In 1998 textiles faced a general slump of the main export market due to Asia's
foreign currency crisis, unit price cutting by a raise in exchange rate, and
over-competition within the domestic market. However in 1999 the nation's market
recovered and export increased.
Textile import also rose in 1999 through the recovery of the domestic market,
which increased importing textile goods and raw materials for exporting purposes.
Since the beginning of 2001, the export volume of textile industries has gradually
decreased. This was mainly due to export price decrease. As developed countries
like the United States faced economic stagnation and decreased consumption in
general, competing large-scale textile companies entered into a price war, which
then increased unit cost.
Total textile export between January and June 2003 reached US$7,307 million,
down 2.0 percent over a year earlier. Fabric export was also declined (3.5%).
During the same period, the clothing related textile import, however, increased
significantly (23.1%). Total textile import reached US$2,660 million; a growth
of 9.1% over the same period of the previous year.
Export size of Korea's textile industry is ranked fifth after China, Italy,
Germany and the U.S. Korea has the largest production capacity of synthetic
fabrics and the fourth largest in synthetic fibers. Overall productivity, in
terms of production capacity, is ranked seventh.
However, the technological level which is considered most essential allows for
a competitive advantage. When compared to developed countries, Korea falls a
little short of highly developed countries (at 70-80% level).
In the 70s, Korean textile companies began small scale investing in Central
and South American countries in order to avoid import regulations such as import
quotas, etc. Since then, overseas investment by Korean companies significantly
increased. External factors such as economic blocs, and high wages and interest
rates in Korea instigated them to commit an overseas investment.
The majority of investments made by Korea went to China, totalling 1,745 cases,
followed by the U.S.A. with 181, Vietnam with 151, the Philippines with 140,
Indonesia with 129, Guatemala with 95, Honduras with 53, Bangladesh with 51,
and Sri Lanka with 49. According to a recently published research report by
the Korea Institute for Industrial Economics and Trade (KIET), the accumulated
total of overseas direct investment by the textile industry through August of
2002 was 110 times larger than it used to be 15 years before. The share of domestic
textile production in the entire manufacturing industries fell to 7 percent
in 2000 from 11 percent in 1990. Employee numbers in the textile industry in
2001 also decreased 38.7 percent to 371,000 from 605,000 in 1990. The amount
of added value for textiles also dropped to 5.5 trillion won in 2001 from its
peak of 8.6 trillion won 12 years ago. Therefore, Korean textile manufacturing
industry shows de-industrialization in terms of all economic indexes such as
production, employment and added value as the nation's textile factories moved
abroad. Basically, the textile industry brought the de-industrialization crisis
upon itself because it has been bent on cutting production costs including moving
factories rather than trying to improve the added value of textile products
through technical development.
| Import and Export of the Textile Industry |
| (unit: million US$, 2002) |
| |
Total |
Raw material |
Button stitching |
Fabrics |
Textile product |
| Export |
15,674 |
678 |
1,392 |
8,666 |
4,938 |
| Import |
5,688 |
150 |
1,471 |
1,398 |
2,669 |
|
| Source: Ministry of Commerce, Industry and Energy |
